Saudi Arabia is ready to start pumping more oil if the United States indeed ends the sanction waivers they granted eight Iranian oil importers last November, Reuters reports, citing a source that remained unnamed.
However, the source added that Riyadh will not rush into a reversal of the cuts. It will first examine the effect of the sanction waiver cancelation before it decides how to respond to it.
Saudi Arabia will not be alone in this, it seems. Soon after Reuters released its report on Riyadh’s plans, it followed up with a quote from a spokesman for Iraq’s oil ministry. The official said no single OPEC member should be allowed to make a unilateral decision on production changes while the OPEC+ deal is still in effect.
Asked whether OPEC’s second-largest producer was ready to start pumping more oil, the spokesman said “Iraq does not take a unilateral decision to compensate for a reduction in the oil market for any reason.”
Oil prices hit the highest since the start of the year on news that Washington will today announce a cancelation of the Iran sanction waivers that it granted to India, China, Japan, South Korea and a few smaller importers of Iranian crude oil. At the time of writing, Brent traded close to US$74 a barrel, with West Texas Intermediate at US$65.59 a barrel.
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If the U.S. does cancel the waivers, Brent at US$75 and higher will no longer look like a distant and unlikely possibility. This means that OPEC+ will likely end its production cuts in June as originally planned and as Russia has hinted it would like to see happen.
This may mitigate rising oil prices, but it will sour relations between the U.S. on the one hand, and India and China on the other. The two Asian powerhouses are the largest importers of Iranian crude and both would be quite unwilling to pay a lot more for the oil they import.
China was quick to respond: a foreign ministry official said earlier today that Beijing has consistently opposed the unilateral U.S. sanctions against Tehran.
India followed: an unnamed source told Reuters New Delhi was hoping to secure permission from Washington to continue importing Iranian crude.
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By Irina Slav for Oilprice.com
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Without waivers, South Korea and Japan may have to stop importing some 300,000 barrels a day (b/d) of Iranian oil. But this will be more than offset by increased purchases by China, India and Turkey and also the European Union (EU).
Saudi Arabia shouldn’t permit itself to be conned again by President Trump as it did in June last year and start raising production in anticipation of a so-called decline in Iran’s oil exports before the global oil market is irrevocably re-balanced and oil prices are headed to $80 a barrel or higher being the price it needs to balance its budget.
China, India, the EU and Turkey will ignore the sanctions and the cancellation of the waivers and continue to purchase Iranian crude.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London